HOUSTON, TEXAS – SEPTEMBER 12: Democratic presidential candidate Sen. Elizabeth Warren (D-MA) speaks during the Democratic Presidential Debate at Texas Southern University. (Photo by Win McNamee/Getty Images)
Democratic presidential hopeful Elizabeth Warren has proposed a massive expansion of Social Security, including a plan to boost benefits for those who stay home to care for a young child, a frail parent, or another relative with a disability.
Warren has embraced an idea that has been around for years, and one that has been adopted by many European countries—in various forms— since the 1980s. Rewarding, or at least not penalizing, those who forgo paid work to care for family members makes sense. But the idea—just a small piece of a much bigger plan-– also includes some pitfalls. Warren could accomplish the same goals in other, more effective ways.
Like many of Warren’s proposals, her Social Security plan is hugely ambitious and extremely expensive. Besides the caregiver credits, it would give every beneficiary an additional $200-a-month, increase minimum benefits for low income workers, expand eligibility for students and disabled widows, and increase benefits for surviving spouses. She’d also tie Social Security benefit increases to a more generous inflation index than the program uses today.
How she’d pay
She would pay for all this with two big tax increases on those making $250,000 or more—a payroll tax hike from 12.4 percent to 14.8 percent and new taxes on investment income. Warren says the revenue from the two new taxes would not only pay for her new benefits, it would extend Social Security solvency for another two decades.
To understand how the credit would work, remember how Social Security benefits are calculated: To oversimplify, the program calculates your benefit on your highest 35 years of eligible earnings. Years you are out of the workforce count as zero earnings. After you’ve got your 35 years, each higher-earning year replaces a lower-earning year. For many married couples, the lower-earning spouse may receive a spousal benefit (generally up to half that of the higher-earning spouse) rather than the smaller benefit based on her own earnings.
Under current law, if you have to leave your job or reduce your paid work hours to care for a loved one, that lost income may reduce your eventual Social Security benefits by lowering your lifetime earnings. Under Warren’s plan, you’d get credit for serving as an unpaid family caregiver as if you were doing paid work.
For every month someone provides at least 80 hours unpaid care to a dependent, they’d get credit for the monthly share of that year’s annual median wage. Those who have been unpaid family caregivers for the past five years would get an unlimited amount of credits and could claim retroactive credits.
Granting family caregivers’ Social Security benefits for their time at home could benefit many low-income families. But Warren’s plan raises some concerns. And design details really matter.
For example, her caregiver credit likely would make little difference for many middle-income workers who make more than the credit level and provide care while working full time. Or who take just a year or two out of long working careers to care for a frail parent, since those relatively low-earning years could be dropped anyway from Social Security’s benefit calculation. Similarly, it may make little difference to someone who receives a spousal or survivor benefit (especially since Warren would boost the latter benefit for some).
Her plan could reward some people who never intended to work full time. And it might discourage people making less than median earnings from going back to work since they’d receive bigger benefits by staying home.
Best use of revenue?
The plan raises vexing administrative issues as well. How would she define what “care” means? And would the person receiving assistance have to meet some disability threshold? How would that be defined and enforced?
More broadly, her plan’s generous benefit increases may not be the best use of the revenue from the tax increases she proposes. For example, bigger Social Security benefits are nice, but a 40-something caring for a frail parent won’t see them for 20 years. What if Warren used some of the tax revenue to finance a public long-term care insurance program? She could fully finance a solid public program with a payroll tax hike of roughly 0.6 percent to 0.75 percent. And a cash benefit could pay family members right away, when they may need the money. Not in 20 years.
And speaking of 20 years, because she’d raise benefits so much, her substantial tax increases on the wealthy would increase program solvency by only two decades, from 2035 to about 2054. But what would she do after that?
Give Warren credit for thinking about family caregivers. But her Social Security plan is less than ideal.
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